For people with excellent credit, now may be the best time to sign-up for a rewards card.
Six credit-card issuers now offer upfront rewards of more than $1,000 to entice creditworthy people to open new accounts, according to a recent survey by CreditCards.com. Historically, that is the most issuers ever to provide four-figure, sign-up bonuses.
"What we are seeing is an arms race in sign-up bonuses," said Matt Schulz, senior industry analyst at CreditCards.com.
To value the bonuses offered by issuers, CreditCard.com assumed an average cardholder would spend $1,325 per month over three years and maximized their points by achieving the cards' spending limits . (See their full methodology here.)
The rewards bonus boom is happening for a variety of reasons: Consumers are spending again. Charge-off and delinquency rates for cards are the lowest they have been since before the Great Recession. And banks are eager to attract and retain well-heeled customers who qualify, Schulz said.
One credit card has embodied the rewards mania: Chase Sapphire Reserve.
Introduced in August, Chase Sapphire Reserve offers a 100,000-point sign-up bonus. That was double the bonus its competitors had provided until the American Express Business Platinum offered a similar deal in September.
"The credit card business is such a copycat business," Schulz said. "I wouldn't be surprised if another issuer offers a card like Chase Sapphire Reserve."
Rewards cards are typically not the lowest-rate cards people with good credit can find, said Tim Kolk, president of TRK Advisors, a consulting firm for credit-card issuers.
"But if you are paying off your balance every month, a low rate is irrelevant," Kolk said. "People really like free rewards."
You will have to spend thousands of dollars in the first few months of getting the new plastic to earn the full bonus. With the Chase Sapphire Reserve, you will have to charge $4,000 in first 3 months. For the American Express Business Platinum, you'll have to ring up $10,000 in charges in the first 3 months.
After the sign-up bonus, you still have to contend with the hefty annual fee. Two-thirds of cards that offer upfront rewards of more than $1,000 have annual fees of $450.
"The math doesn't work as well in year two," Schulz said. "Make sure the card fits your lifestyle."
For example, cards from Chase and American Express offer generous points and perks for frequent travelers, but that won't matter if you stay at home.
Scott Bilker, founder of credit-card advice website DebtSmart.com, notes that Chase Sapphire Reserve cardholders have to book their travel through Chase, which may not have the best deals compared to what can be found elsewhere.
While requiring cardholders to book travel through Chase is not technically not a restriction, it can limit the value of those reward points, Bilker said.
"It's why I prefer cards that give me cash back," said Bilker, who said he has 45 credit cards and a credit score of above 820.
You may be tempted to take advantage of the rich sign-up bonuses and then bolt. If you do that, keep the account open for at least six months to minimize the damage to your credit score, Schulz said.